A concessionaire for the local ballpark had developed a tabl

A concessionaire for the local ballpark had developed a table of conditional values for the various alternatives (stocling decision) and states of nature (size of crowd)

                                                            STATES OF NATURE

                                                                   size of crowd

ALTERNATIVE                         LARGE                   AVERAGE                 SMALL

Large in Inventory                  $22,000                     $12,000                    -$2,000

Average Inventory                  $15,000                     $12,000                     $6,000

Small Inventory                      $ 9,000                      $  6,000                     $5,000

If the probabilities associated with the states of nature are 0.40 for a large crowd, 0.30 for an average crowd, and 0.30 for a small crowd, determine:

(a)        the opportunity loss table.

(b)        minimum expected opportunity loss (EOL

Solution

a) Opportunity Loss Table States of Nature Alternatives Large Average Small Large 0 0 8,000 Average 7,000 0 0 Small 13,000 6,000 1,000 (b) minimum EOL = $1,600